Okay, everyone. I think we can get started. My name is Steve Kantor. I'm the Vice President of Investor Relations for Entegris. And it's my pleasure to welcome everyone to the 2018 Entegris Analyst Meeting, both the people in the room today here at our headquarters in Manufacturing And R&D Facility in Chile, but very sunny, Bill Richemas Chuseits, as well as those of you on the webcast.
This meeting is being webcast live and will also be available on demand. And the webcast, as well as an electronic copy of the slides are available on our website. For the people until all the presentations are completed. At approximately 12 pm, we're going to take a 10 minute break. For those in the room, you can grab a box lunch which will be positioned right behind the curtain behind you.
And we expect to conclude the formal part of the meeting at 1:30 pm. For those here today, we are offering a tour of our manufacturing area, including the recently acquired Trincic line of filters as well as our analytical labs, those who are interested should meet in the back of the room following the Q And A. You'll notice that there are surveys in front of you. We really appreciate you completing those. Your feedback is extremely helpful to us to unlikely events of an emergency, the nearest exit is the door you entered the building.
So that's back to the left, down the stairs and out the door I'd like to remind everyone both here and on the webcast that we will be making forward looking statements today, and we encourage you to read We have a great Our speakers today will include Bertrand Loa, President and CEO Wenga Yang, Vice President of Strategic Marketing, Todd O'Neil, Chief Todd Edland, Chief Operating Officer Jim O'Neil, Chief Technology Officer and Greg Graves. Chief Financial Officer. I'd like to introduce a few of the other members of the management team that are here today, first, You can raise your hand. Sue Lee, SVP, chief counsel, Sue Rice, SVP of human resources, Susan in the back. Greg Marshall, SVP of Quality EHS And Business Support, Corey Ruchi, SVP of Business Development, Stewart Tyson SVP, who heads our Specialty Chemicals And Engineered Materials.
Maybe he's not here. And then, Clint Harris, who, is SVP and runs our microcontamination control business. Clint will be lead us on the tour following the formal part of the meeting. Who's our newest member of the Board of Directors, she's in the back. Before turning it to Bertrand, I do want to again remind you to hold your until the formal presentations are completed.
Thank you again, all of you for joining this, annual, Integris Analyst Day, whether you do this in person here or over the webcast. So as the CEO of Entegris, I'll tell you that I'm very proud of, what we have accomplished in the recent years, as we outpace the industry, as we outpace our peers. But as a management team, what we want to tell you today is that no matter how good feel about the recent performance of Entegris, we have yet we are yet more excited about what lies ahead. And the objective for us today is simply to share with you the reasons for that optimism. So going to Next slide, I will start with what used to be a prediction of mine is probably now more of a fact.
The 4th industrial revolution is here. Some will call it the digital revolution. I prefer to call it the data revolution. The 4th industrial revolution indeed, in my opinion, is about creating intelligence, extracting value out of the data that will be collected, the data that will be stored, process, indexed, correlated. In other words, it's really about moving data from the very edge of the network back to servers to repurpose it and then to move it back, to move the data back to the users, in the form of new insight.
And the users can be humans, the users can be machines. But that new insight that will be created is what will transform our health care, will transform our cities, will ultimately transform so many aspects of our lives. So you would say, okay, well, nothing really new here. What does that mean for the industry? Does that mean for Entegris?
So let me talk about all of those and address all of those questions. First, the explosion of data will drive greater innovation, and that in turn will create the conditions for a proliferation of chips. So those examples here on the screen are actually pretelling. We estimate that by 2025,000,000,000 devices will be it to the internet. And all of those devices will be equipped with a multitude of sensors, collecting and generating huge amounts of data.
Google estimates that an autonomous car will generate about 4 terabytes of data a day. So take a couple of those cars and combine, they will generate an amount of data equivalent to the printed collection of the U. S. Library of Congress. So fast forward 2025 Seagate estimates that by 2025 on an annual basis, we will collectively generate about a 160 Zettabytes of data.
That's a lot of gigabytes. That's actually a lot of libraries of Congress, if you think about it. But beyond those examples, which at some level can be helpful, but another level can be constraining, what is really important for all of us to remember is that improvements in the technology efficiency will drive new usage And those new usage ultimately will translate into greater rate of consumption of semiconductors. So the takeaway for you here is that the digital revolution will create conditions for the semiconductor industry to grow at a level of about 4% to 5% a year for the next 3 years. And here, we're talking about cheap volumes.
And as you know, the volumes of ships manufactured every year is the primary driver for the Integris business. So this is all good and well, but for that digital revolution to actually become a reality, we will need a better infrastructure. And what I mean by that is we will need sensors that are more reliable. We will need storage solutions that are more effective. We will need a network with better latency, and we would need faster computing power to essentially create that insight that I was talking about in a near instantaneous way.
And let me tell you we are not quite there yet. And Jim O'Neil, our CTO, will tell you that when you think about the next level Well, miniaturization alone, Maurice Law alone will not be the answer. Instead, the semiconductor industry will turn to new materials with better electrical properties, and we'd also turn to new structures, new architectures for the chip to enable, again, that greater level of performance. And that's great news for Entegris, because if you think about the materials that will be required, To make those chips, if you think about the chemistries that will be required to make those chips, they will be subject to very, very tight specs in terms of quality, in terms of purity, in terms of stability. And these stacks will really push the limits of what we know how to do in this ecosystem.
So it will require the industry ecosystem to collaborate to solve those emerging process challenges. And when you think about Entegris and if we think about the 3 divisions comprising integrase, SCEM, microcontamination, advanced materials handling solutions, we will be a critical enabler for the process solutions of tomorrow. And Todd Eduardo, our COO, will describe how those various technology platforms will be very complimentary and will be very critical for the semiconductor ecosystem to enable those new materials to enable those new structures So the punch line here and the takeaway for you is that what we do at Integris is becoming increasingly important for the semiconductor technology road map. And as a result of that, we expect our served market to grow faster than wafer stops. So in the previous slide, I was talking about collaboration, and I grant you everybody talks collaboration these days.
But at Entegris, we have placed collaboration at the center of our business model for the last 10 years. It's really truly part of our DNA today as a company. And as a result, I would argue that we are pro be much better at collaborating than most companies. If you think about our value propositions it's really centered around 3 major elements. The first one is superior technology.
Over the last 5 years, we have increased basic the amount we're spending every year on R&D. But more importantly, we have done a much better job at making sure that we are very closely aligning our technology road map to the emerging process challenges of the industry. And Jim O'Neil, our CTO, will explain to you how, as a result, our portfolio has evolved over time. Structure. If you want to collaborate, you just have to make it very easy for the customers to do that with you.
So we have invested In tech centers, we have invested in metrology capabilities. We invested in talent in all of the major markets, in the semiconductor industry, to make it possible for customers to collaborate in the same language, in the same time zone. So when you think about the teams interacting every day with our customers, you would find people that are very smart, and Jim will talk about that. But also people that are really team players. You will find people that are really fast at developing new technology, but also very in rigorous and adhering to very prescribed, development protocols.
In other words, our customers love to work with our teams. And Jim, should take great pride of that, and he will talk to you about all of the investments we've made on that front. Last but not least, operational excellence has been a major area of focus for us. In the end, what our customers want is unique technology that we can actually, if they like the technology, that we can move very quickly from the pilot stage to high volume manufacturing. And they want that to be done in no time and in very, very tight process windows.
And I think we're getting pretty good at that, but that has required very significant investments over the last decade investments in statistical process control, in talent, again. And increasingly, over the last few years, a greater thought us in managing our own supply chain. So we can actually minimize variability in the input materials. So we can actually enable early fingerprinting of the input materials. So in other words, again, the takeaway for you here is that We have established Entegris as the preferred partner for most of the technology leaders in this industry and that over time will translate into market share gains.
So this slide will allow me to summarize the previous three slides. So remember, first big trend is This digital revolution will actually create very favorable lasting conditions for growth in the semiconductor industry. And we expect, as a result, very steady growth, in terms of wafer starts. Second aspect is what we do at Entegris is increasingly important for this industry III. We talked about the importance of materials.
We talked about the importance of purity. And that will translate into a fast expansion of our served markets. And then the third point is I talked about a unique value proposition, and I talked about the quality of our execution, and that will translate into market share gains. So if you blend all of those considerations, Together, you have actually what is our long term growth objective of about 5% to 8 of annual CAGR. Now there are a few before I turn the page, there are a few other considerations at the bottom of the slide, that I would like to touch on because those are very unique attributes that make integrase stand out.
Among other investment options that you may have in this space. So first, we have a diverse customer base, Todd Hedland will talk to you about why the very nature of what we do, why our position in the ecosystem them is enabling us to have that diversity in our customer base. The other important piece is that most of what we do are consumable products that are used in the daily production cycles of the semiconductor fabs. And our process solutions are very sticky. So all of that translates into very long tails of recurring businesses.
And recurring revenues. And Todd Edlund will actually provide a little bit more details around all of that. And the other aspect is really the fact that we will often refer to the breadth of our portfolio. And what it means for you as investors is that At every turn in the industry technology road map, we've been able to find opportunities for some parts of our portfolio. And Jim O'Neil will explain to you how we are managing innovation and intake is in a broad way and how, as a result, we are nearly agnostic to any major technology shifts in the industry.
So great organic growth specs for Entegris, but let me be clear, the focus of this management team is not limited to top line growth. As we grow the top line organically, we intend to maintain what we consider to be a very attractive flow through 40%. And what it means is that ultimately, we intend to grow our bottom line we intend to grow our cash flow at a faster rate than our top line. And third, Edwin will provide actually some elements of the strategy that will allow us to control our cost structure to provide that leverage, And then Greg Graves, our CFO, will actually drive you through a fairly comprehensive walk forward of what it means for the years to come. Another big area, our focus obviously is the capital allocation strategy.
Integris is a business that has been generating a lot of free cash flow. And we certainly expect that to continue going forward. So the question is, what will we be doing with the cash we are generating And that side actually addresses that question. As I mentioned, we believe that our core business has a lot of potential So no surprise. Our number one priority will be to reinvest in the business, to shore up the value proposition I was describing earlier, other words, make sure that we spend adequately in R&D, make sure that we continue to invest in the global infrastructure advanced metrology and, of course, continue to add to our manufacturing capabilities and manufacturing capacity.
Next would come acquisitions. We believe that we have proven to be a very effective acquirer. And we expect to be able to be more active on that front going forward. And then at the bottom of the slide, you can see some other elements of our capital allocation strategy. Dividend, we announced actually a quarterly dividend, in Q4 of last year, an ongoing share repurchase program.
And then the continuation of our term loan repayment, something that we started right after the ATMI acquisition in 2014. And Greg will provide a lot more details around all of those various elements. So When it comes to acquisitions, you can expect us to stick to a series of very clear guidelines. Against which we will be assessing any new acquisition candidates. From a technology standpoint, we would love to continue to and expand our capabilities in advanced materials in separation technology in sensing and control and advanced packaging.
From a market standpoint, expect us to continue to focus on our semiconductor market, but in some cases, we may choose to venture in adjacent markets, if we can find acquisition that could accelerate internal development work and could provide for the broader Entegris portfolio. And finally, you can always expect us to adhere to very strict financial guidelines. Financial guidelines that we review routinely with our board and financial guidelines that will include consideration around minimum levels of accretion, year 2, after an acquisition, minimum levels of ROIC 3 years after a deal. So another way to actually talk about acquisition is just to state that we will be focusing on acquisitions that create long term value for our customers long term value for our shareholders. And if you look back at what we've done over the last 3, 4 years, I think that the recent years actually are perfect proof points of the focus and the discipline that I was actually describing.
So let me talk a little bit about that. So with ATMI, We got access to a whole new scale, and we got access to a very complimentary platform. So I'll give you a few examples of that. So first, the scale obviously was a big enabler for the EBITDA expansion in 2015. But scale was actually as important in our ability to attract talent as a company, attract talent in Taiwan, attract talents in Korea, and even in the U.
S. Here. I talk about complementarity, and that was true from an infrastructure standpoint as well. Think about it this way, TMI brought to us a tech center, a manufacturing footprint, better customer access in Korea. And I will tell you that the success we recorded in Korea last year is in great part related to some of those benefits that we got from the ATMI acquisition.
And that frankly benefited every single product line across our portfolio. Again, if you think about ATMI, Jim O'Neil, CTO, will talk about the new value proposition that we've been able to create for our customers. We will give you examples of co optimization of filtration and packaging for our cleaning solutions. They will talk about system solutions, enabling usage and dispense of advanced deposition materials on the wafer. But I will leave that to Jim.
So moving on to Trincic, slightly different scale, more of a tuck in, more of a product line expansion, given us access to larger, filters focused on bulk chemical applications in the sub fab something that traditionally we would not have really focused very much on. So a very nice extension, small, but we expect this transaction to contribute $0.01 to $0.02 in 2018 2019. And then finally, PSS, great technology, great team, very solid platform that I think will blossom as it gets access to our global distribution network. And as PSS can get an access to our supply chain, and manufacturing, best practices. So it's a business that has a strong foot in semiconductor applications with, sensing and control capabilities around the CMP modules, but also provides very nice opportunities in life sciences as well.
So this slide actually concludes my presentation. And when you listen to the next presenters, I hope we can press upon you that Integris is a very unique platform. Integris is, in fact, a very unique investment up churn for you. We have very exciting organic growth potential. We have a very strong balance sheet balance sheet that we intend to put to work to generate EPS in excess of $2.50 by 2020.
So with that, I would turn to Greg.
Okay. Thanks very much, Bertrand. While we transition to the next speaker, just sort of key high highlights of Bertrand's presentation. At a level, he's told you the whole story, we've got a great market driven by the digital revolution. And the 3.
We're sort of on trend in terms of what we're doing in terms of material solutions, contamination control. So what does that mean to me? Does it mean to an investor? We should win no matter what. I mean, just the fact that there's more volumes, more complexity, what we do really matters.
The other thing that he didn't mention so much in words, but underlying thesis is the discipline that we have as a management team. And I think if you look at our historical execution and as you look forward, we have been a team that sort of we say what we're going to do and we go out and do it. We don't swing for the fences, but we've delivered on our commitments repeatedly over the last 3 to 5 years. So with that, one housekeeping issue. Steve forgot to mention Bruce Beckman, who is my key lieutenant on the finance team.
He's our Senior VP of FP And A. Played a big role in putting this together and plays a big role in sort of driving our operations with Todd day to day. With that, I'm going to turn it over to Wenga, who is our VP of marketing strategy. Wenga has been with us about 6 years. Came to us via AMD, Tokyo Electron, shorts stint on the sell side at Citibank.
Don't hold that against them. And then came to us, like you said, about 6 years ago.
So, Patron has gave a very good overview of what the company is facing and our opportunities. I will dive a little bit deeper into what's the market trend or what does that mean to Entegris. So if you look at, the overall digital error of digital age, everyone's talking about, what does that mean specifically to Integris? What we see is with this digital evolution, are multiple industry drivers that's helping the semiconductor industry. All those drivers simply means more semiconductor chips needed.
For the whole society to enable different applications and different new growth areas. And those chip demand drive the fundamental matrix that we follow, which is the MSI or 1,000,000 square inch wafers annually. So those are the wafer stops that integrates revenues very closely correlated because we need more chips, we will start more wafers. Hence, the revenue fundamentals of integrations is right there. And there are 2 additions to the more wafer stops that's beneficiary to integrals.
We were discussing a little bit more detail. The first one is that for every single wafer starts, actually, we are increasingly using more materials. So as we know, Integrys is a very specialty materials company, more mature usage added the growth elements to Integrys. And also the biggest challenge of our industry is facing as we continue to progress on the technology is how to control the contamination. Contamination control become one of the biggest challenge of the industry, and it's the biggest one of biggest opportunities for Integritis.
So if you look at this whole flow, more drivers, more wafers, more materials per wafers, and all the materials has to control contamination. This basically set up the overall market trend for the company to grow. Diving a little bit more deeper and there are a lot of buzzwords here. What I want to say is, if we look at what's driving different type of semiconductor chips, for logic and memory. We all hear about Samsung, Intel, TSMC's, they're talking about there are multiple new applications kicking in the past, it's PC, it's smartphone today.
Everybody's talking about artificial intelligence. The 5G network, data center, big data, VR, ARs and also cryptocurrencies. Many of those new applications are driving the progress of logical memory. And then there's an area that people normally don't pay a lot of pension, which we call mainstream technologies. Those are the technologies that's not necessarily spelled the leading edge, but they are actually the fundamental areas of our semiconductor industry.
And those applications including automotive, it's including today's automotive, safe days, sensing, and the futures autonomous drive. The IoT, as Petrol mentioned, there's going to be 75,000,000,000 different devices connect to the internet. So that's driving the fundamental of IoT from buzzwords 3 years ago to actually detailed applications today. And then industrial automation and robotics, that's an area that people normally don't see don't see the clear unit reflections, but it's actually driving a lot of semiconductor that going into the industry and security surveillance is another area. So as we can see, we can easily list 10, 12, 15 different new applications that's driving our industry compared to the past.
That's actually a big change of what's the fundamental past 30 years, 20, 30 years time frame, PC was always the bedrock of the industry. And we the PC Aero internet era that's been driving the industry for a very long time. And then 5, 6 years ago, smartphone replaced PC as the big driver. So one driver pick on 2 drivers. TC is still there, but smartphone kick in.
And 2017, I would call 2017 as an inflection year because 2017 suddenly all those new drivers, we're talking about 10, 12, 15 new drivers kicking to the industry and suddenly drive the semiconductor exposed growth. And we think all those new drivers are just at the starting point. If you look at each one of them, in the next 5 to 10 years, they're going to continue to grow. That's why fundamentally, we believe it's a great area for semiconductor industry, not because technology is happening, but because all those drivers, create the demand and needs for a lot more semiconductors than we have in the past 10 years. So what does that mean fundamentally?
Fundamentally just industry needs more wafers because more semiconductor chips and turn out to be the industry has to make more wafers to meet those demands. This is a very simple curve of 1,000,000 square inch, how many wafer starts the industry has. As you can see, it's almost a straight line, you can exclude 1 of the financial split in 2009, and it's a pretty healthy growth trajectory. And the reason that this curve keeps going up and we've it's going to go up faster and extend it more in a future years is that it's basically society is progressing. Society is progressing.
We need more in the past, we try to find which electronics can drive this curve. Is it PC? Is it smartphone today? You can list the 15 applications we just discussed. So that's the fundamental driver of our business, more wafer stops.
And we can look at some of the numbers of MSI. So in the 10 years before 2017, 2006 to 2016, the CAGR is 2.7% for the MSI. The reason for that number, it's, I think, at the same level as GDP is because lack of application drivers? Is it PC decline, smartphone grow? And when a smartphone appear, PC already started to So there's a single driver that's supporting these numbers, 2017, 10% wafer stock growth.
A very fundamental shift. And we look at what's happening, what exactly drives this high growth numbers, 2017 is actually not a good year for PC and smartphone. PC is declining 3% and the smartphone only grew 1.3%. So the traditional driver for our industry has not contributing to this explosive growth. So this is why we believe all those new applications actually become the factor for our industry starting from 2017.
So move forward, what's the future look like? 4.4%. That's what the 3rd party forecast for the industry. So you can see already it's almost twice as what happened from 2006 to 2016. And as those applications continue to grow, we believe this number could be, is very solid and could be even higher.
Now we understand there are a lot more wafers needed for the industry. What about per wafer base? We always talk about industry's progressing this more slowly. What does it translate to integrase? Actually, if you look at 2 of the fundamental devices in the semiconductor industry.
1 is logic, the other one in this memory. How much materials do they spend per wafer? So on the left hand side, that's a typical logic device, a 28 nanometer versus the 7 nanometer that's ramp up this year. The material spending per wafer actually increased a nanometer to 7 nanometer. On the right hand side is the very exciting three d NAND devices.
So today, 3 d NAND production is at 64 layers and the industry is migrating to 96 layer end of this year and 128 layer in the next 2 to 3 years. And compared to 64 layer versus 128 layers, the material spending per wafer is going to increase by 1.8 times. So this has actually added the growth of demand for Integra's products because not only the wafer started growing The material demand per wafer is also growing at a rapid speed. If you look at some of the key areas the interior is playing in, So we acquired HMI in 2014. And those are the key areas that HMI products or we today, we call SCEM products, our specialty material products that play in, deposition, which is the fastest growing segment in semiconductor industry.
And this is also the fastest growing business units for interpreters in 2017. The we look at the growth for the next 3 years, it's going almost 12% annually for this area. That's because both the memory and the logic requires tons of deposition etch, deposition etch to achieve those devices. Copper and cobalt plating, those are the electro plating products that we dominate the market in the last 10 years. It's grow almost 8% and it's also going through a transition from a copper to some of the new materials like Cobo.
And especially WACC chemicals, we all know that every etch step is associated with the wet etch and clean step or cleaning step deep after that. So as the edge step move forward, the demand for wet chemicals is also growing, it's growing about 8.2%. And the dopant, specialty gases, integrase is, famous for SDS safe delivery systems that's used for the dopant gases. It gonna grow 6%. So if you look at all those things, interwares is playing the top 3 of each of those markets and those markets are growing, all growing faster than MSI growth.
That's because the material usage as Ajay adding to what the wafer start is growing. Now, there's a lot of questions about, so material usage, material new material adoption is very setting for the industry. But what's the biggest challenge for our industry as we continue to progress on the technology and many customer will tell you it's the contamination control. Why is that? Because when you make a chip, those contaminants actually kill your chips and it's affecting your yield.
So this is on the top, it's actually a back that our foundry customers provided to us. They said from 28 nanometer, logic device to 7 700 megabytes. What are some of the key specs for contamination? The first one is the metal impurity. So metal impurity speck is actually reduced 1000 times.
It used to be parts per billion level at 28 nanometer. Today, a 7 nanometer is parts per shutting level. And people even start to talk about PPQ, which is another 1000, multiples in a future node. So how to control those metal impurities in the materials, in the liquids, in the gas, it's becoming very big challenge for the industry. And the second thing is the particles.
We all know if a particle form under patterns, it kills circuit. So those particles back has shrinks significantly from 28 nanometer to particle, minimal particle size, people can is 30 nanometer. Today is 15 to 10 nanometers. So extremely small particles to the point that many some of those particles even detect by our current metrology, but they challenge integrity since you are a contamination control supplier, those are the specs we want you to achieve. So what does those impurities or contaminants affect the wafer?
We did a very simple calculation for 1% yield. What does that mean to our customers. 1% yield, we always hearing companies talking about 70%, 80%. What about just 1% yield? What does that mean for 1 year.
So the logic devices, for example, if you're making the key CPU or APU devices, 1% yield at a 10 nanometer node, is equivalent of about $150,000,000 of revenue or direct profit for that fab. This is a 60,000 wafer stop fab, leading hydrologic fab. And for the 3 d NAND making a 64 layer devices, it means $110,000,000. So you can see the yield has direct impact on the bottom line of our customers. That is why they put so much more focus on controlling the contaminants because contamination is the number one contribution to those yield implants.
So if you look at Entegris, we Entegris is traditionally a number one solution provider for the industry for contamination control. We control the contaminants in the liquid, in the gas and in the air. So this is our estimate of how each of those segments will grow in the next 3 years. Liquid about 10% annual growth, gas contamination control is about 63 6.3% and it is about 6 0.2%. So as the top provider of those solutions, we actually feel the demand from customers and also the challenge from customers to meet those industry demand.
So there are lot of new applications coming into our industry just want to comment a couple of new applications that's directly, being the focus today of the industry. The first one is as we know, 3 d NAND is driving a lot of CapEx spendings, driving a lot of material spendings for the industry. And what our estimate is from 2016 to 2020, the capacity for three d NAND worldwide is going to increase four times. So this is directly result of the big data and also the need for a better data storage solutions. As we all know, 3 d NAND can hold large amount of data at a very fast read and write speed.
So For Entegris, obviously, we provide the contamination control solutions. We support the fab construction and equipment, but we also develop a serious specific products for this really then. Some of those, the new deposition precursors, that's used, specifically, 3 d NAND, a very high selective wet chemicals. As we know, 3 d NAND, one of the key characters is super deep and very narrow. So how do you clean those trenches and holes?
It's become a big challenge, Jennifer, is actively involved in developing some of those solutions through our partnership with customers. And then those devices obviously require particle and metal controls very robust process tool components. So we also provide some of our product solutions like coatings to equipment makers to address this market. And then, there is a big wave of updating their FOOPs. FOOP is actually the micro the box to hold the wafers.
So customers realize that in the past, memory always use less sophisticated fruits but for 3 dnet, they need the best foods available to the industry. So a lot of opportunities for integrase beyond our regular product pushes. The next one is EUV. So there are a lot of discussions about EUV. EUV is basically a new lithography technology that enables the industry continue to make the transistor smaller.
And after 20 years of struggle, finally, EUV will get into production end of this year, next year. What does that EUV mean to interprets? First of all, we believe that EUV is very beneficial for the whole industry, it enables the shrink of the devices to the next generations. Without EUV, the industry, the most lower progressing. So overall, this technology enabled industry to continue to progress.
And it's going to slow down the complexity increase, but it's not stopping the complexity. So a lot of people say, UV is going to hurt, material equipment suppliers. We actually disagree. We think it's going to slow down the complexity growth, but the complexity is still going to be there. For Integritis, it's very unique because we are not only going to benefit the overall notes we also have developed a serious that's going to hold one of the most precious goods for the UV technology, which is those UV masks.
Photo risk filters, EUV is going to likely to use a very different photoresist. So in some cases, even including some of the metal elements, it requires a brand new futures and purifiers for those resist. And our MC division is developing some of the leading edge solutions and working with all the photo release makers to implement those new futures and purifiers. And then UV requires some of the post etch solutions, that our SCEM divisions are developing. Lastly, there are a lot of components in the EUV tools and interest providing many of those components to the equipment vendors.
One of the things that the whole industry is not paying enough mentioned that until we finally realized this is actually a very fast growing segment is actually we call it mainstream notes. Those are the notes at 32 nanometers in beyond, 65 nanometer, 90 nanometer, 0.18.25. Those are the nodes that people don't talk up lot about. Those actually are the notes that's driving a lot of growth in 2017. And we believe they will continue to drive the industry in the next several drivers of our industry, like IoT, like industrial automation, like automotive application does not require many leading edge devices, but by a lot of mainstream node devices.
That is why if you talk to some of the companies that who have 200 millimeter capacity, they will see the utilization for 200 millimeter capacity is actually higher than the 300,000,000 capacity because those are the sweet nodes that are providing the best cost for the devices that's needed for those applications. And if you look at the whole industry, today, those mainstream nodes is about 49% of the overall capacity of the industry. And it's going to grow, even though the percentage of it would decline a little bit at 2020, it's still going to be 46% of the whole industry. Is in those notes. As you know, those are the notes that not buying equipment, not buying a lot of new stuff, but they continue to buy materials.
Make those swafers. So Entegris has relationship with many of those companies for 10, 15 years and suddenly we see a resurgence of the revenue from those customers. And we think this trend will continue for many years because of those application drivers. If we put all those three things together, more wafer stuff, more materials and contamination control, all three market. This is the same expansion of our 3 divisions.
As you can see, 2017, we see the same is about $4,200,000,000 and it will expand it to about $4,900,000,000 in 2020. And the expansion happens in all three divisions for the materials, for the contamination control, and for the materials handling. So as Bertrand mentioned, we look overall 5% to 8% growth, how does that put together? So if we look at the overall society, GDP is going to grow about 2% to 3% and newly. And then the wafer starts, because of those new applications, the wafer start will grow faster than the GDP to adding another 1% to 2%.
Then you look at Integra's execution. What we see is there's some mature intensity favors integra's that's going to be contaminant examination Control, their favorite endeavors. And then our execution and a product portfolio will drive the same expansion and also market share gain. You add all those three things together, it's a 5% to 8% growth in the next 3 years. So to summarize, market is great for integrals.
We will have more material, more wafer starts, more materials per wafer and content control will drive some of the key adoptions of our products. So put it together, it's a great setup for Integralers to continue to grow in the next several years. Thank you.
Thank you, Wenga. So really, I heard 2 things in that presentation. 1, the semiconductor market's a better than it's ever been before for 3 reasons. 1, it's a more stable market. It's a more stable market because it's no because no longer dependent on is accelerating when coming off of period 2006 to 2016 where wafer starts grew 2.7% into a phase where the period from 16 to 20, they're going to grow over 5%.
So accelerating growth, and it's a bifurcated market. Meaning, you've got the leading edge as well as the maintenance or trailing edge. And if you're somebody like Integris who's been in business 50 years, That trailing edge is important. We have products that are twenty years old that grew 10% last year because of what's going on, people sweating the assets in the trailing edge. So that's the market overall, why the semi market is a really good place to be right now.
When you think about Entegris products specifically, you really talked about 2 things. 1, you talked about the materials intensity and how when you move out an application, materials usage at some of the advanced apps is 2x. With 2, that's how you grow a Specialty Materials business, 13% in 2017. You talked about part particles still being the number one issue, in terms of defects in the fab. You've got a contamination control business, that's perfect, right?
That's how you grow contamination control business, 20%, you're tied right to that trend. So with that, I'm going to turn it over to Todd. So Todd's our Chief Operating Officer, been with the company 22 years, had a wide variety of positions, everything from a product manager to running a sales organization, to running a division, and now the chief operating officer. So,
Todd? Good
morning. Thanks everybody for coming to hear about our company today. Exciting to talk about it and you could hear it in Wenga's voice. He's pretty excited about the opportunities of the company, how the market is. I was really thrilled when he joined us about 6 years ago.
He came, to the company thinking this is the company that's going to really benefit from what's happening in the industry in the next several years. And he was really pretty into that case, he saw it coming and came and helped us actually plot a course to go through that. So what I'm going to do is, move forward here. When I started working for Bertrand, about 8 years ago, as he was COO, he gave us a pretty clear message that we're going to build a company that's going to listen to the customer's this industry and deliver what they need to succeed. Arguably, the most challenging manufacturing environment in the world is service.
You've got to be relevant. You've got to be able to help them solve problems. You got to be able to support them as they go through these fast ramps. And so I knew what I needed to do, as I became COO as well, is to make sure that we did the right things to build the company to be a great partner and a trusted partner, to our customers and to be resilient, to be able to, after 51 years, deliver a record year, and plot beyond that to keep the growth going and keep the success going. And I'm feeling very confident that we're ready to do that.
I'll describe to you a little bit why as I go through my slides. So these three phrases at the top here really reflect our customer's voice. This is what they see, they say they need from their suppliers and specifically from Entegris. Higher yields, as you just heard about, our money in the bank for them. So they need to have higher yields.
Quickly, they need to ramp fast to high yields, and they need to be able to continually improve those yields as time goes on. Better performance really means we work at the very beginning of the process as they design Semiconductors, more and more, Jim and his team are at the table helping them think through integration schemes to make those numbers become reality, reduce power consumption, increase speed, provide greater data storage and data access. He's helping to make all that happen. And that helps us get insight into what's going to come in terms of the fabs and what the equipment manufacturers are going to be working on as well to deliver that chip. New one is reliability.
So you heard, both Bertrand and Winga allude to things like self driving cars. And as we were reminded, even yesterday, reliability is going to be paramount. I mean, if your PC goes down or your phone has an issue, that's an inconvenience for sure. If your self driving car goes haywire, that's very bad. And so the latent defects is the new thing that people are starting to look when we talk about contamination control, it's not just do I get through the fab and I get out the door, it's what happens 10 years down the road when this thing has been heat cycled, If there's any laden metals in there that could cause a short or cross the boundary, they need to avoid those as well.
So when they talk about contamination control. Now it's not just in the fab, but what's going to happen down the road. And so things like purification to take metal ions out are becoming increasingly important. So this is what customers have come to expect. When I look at Integris, I see 2 kind of main things that are really unique about us.
Helping to deliver that. The first is the diverse product portfolio. So I'll talk about the 3 divisions you've heard us talk about them before. They really help us, go into a or with much more relevancy to be able to help them solve problems in a lot of different ways. We've seen things in every part of the fab in every part of the industry, including the supply chains.
So we know where contamination comes from. We know where issues come from. We know how to solve problems. We've done it before. So we can help a new customer say a fab in China that's, coming up, and we can help them get there because we've seen the problems that they're going to encounter.
And they know that that's the value that integrity and so they invite us in early to be part of that discussion because of the breadth of what we can do and what we've seen around the fab. And a diverse customer base, this is all something that's very unique about Entegris. If you look at an equipment company, their customer base is really the device manufacturers. You look at a pure materials company, it's largely device manufacturers. If you look at Entegris, which is specialty materials and the contamination materials around it, serve the whole ecosystem.
And in fact, our customers, our large, device manufacturers say we're kind of at the center of that ecosystem. We can help connect everybody working on joint developments, as Bertrand talked about earlier, that's a key to success. We have to be somebody they want to have there at the table early on to solve these problems. So we get the shot of the business. And having that diverse customer base is a great education for us and it helps us actually, Hey, I know who to talk to.
This equipment company. I know who to talk to with this chemical manufacturer. I know who to talk to with Wafer Grower. And I can bring us all together and help solve those problems. And increasingly, our customers are asking us to do that.
So that's, that's built a company that helps us, expand the serve addressable market Wenga talked about, all the things that we do are finding increasing relevancy around different fabs and different devices than in the past. And that's helping us grow the company. So there's some mission critical things that are needed in the industry, and I just want to highlight a couple for you. So one of the critical needs is for, being more than a supplier being a problem solver at any stage. So I talked about that already collaborating with customers.
From the device design all the way through to how they're going to implement that in the fab and then how they're going to ramp and get to yield as quickly as can. And that's the second part of it. This need to be able to go from an idea or a lab scale solution to high volume manufacturing on an ever increasing slope, is really one of the natures of industry now that we have to be responsible for have the right bets. We have to have the right capacities in place. And you only do that right if you have a close collaboration with the customer kind of see what's coming and that's really been critical for us.
So that ability to ramp up very, very quickly to high volume is increasingly challenging and increasingly important, to our success. We've built the company to really work on that. This is a little bit of a visual to help you see, when I say, kind of surrounding the fab, do we mean by that? So if you look at the different divisions, it's all described to you a little bit more in a moment, we're really an aggregate part of the supply in every part of the fab from, solutions for, merger and technologies as they're designing these chips, if they're designing these advanced architects that Wenga talked about and Jim will share some more on. We're there helping them solve that problem, figure out how to do it.
As they start to bring those materials into the be they wafers, being brought in from wafer growers and our shippers, be it chemicals coming in or chemical containers, be it our gas is coming in. In our dispense systems. And then in the sub fabs that gets distributed through the fab, refined purified filters, we're doing all that all the way to the tool, to the point where it touches the wafer, we talk about, Clint's business, the MC division being the last line of defense before the chemical or material hits the wafer. The last thing it'll probably see is one of our products as it goes through the last purification of filtration stuff. And that includes the environment around the fab.
You see at the top there, including airborne molecular contamination, which can become increasingly important, And very interesting problem to solve. If you go around the world of different fabs, everyone's in a different environment, the environment here in Massachusetts, very different from environment in Portland than in Silicon Valley, than in Shanghai. So we have to go in there and find different things that are challenging that environment in the fab and design a unique solution to it. So we just kind of see the whole picture around the fab and when it comes to solving these yield problems, which are very, very complicated these days, may have multiple dimensions in terms of how to solve that. We've seen all of that, which makes us again a more valued partner, a trusted partner, to our customers.
So those are really important things about Entegris that are different than our competitors. That breadth, that ability to understand the problem holistically and to be able to actually come in with expertise and help them solve that problem. So this is a little bit related, I wanted to mention as well. Because we do all these different things in the fab, we see different businesses of our because I'm going to talk about ramp in different product lines, even ramp and then hit their long tail. At different points in the fab life cycle, I'm going to talk about that a little bit I've talked about the divisions.
But if we're talking about our fluid handling products, as they're constructing the sub fab and putting in the chemical environment, That's when we're selling products into that. When they bring in the tools and they're going to start to ramp the fab, that's when they start to bring in hoops. So we'll start to see a big burst of business for those hoops as those come in. As they start up the fab, they'll clean it up and they'll actually run a lot of filters to actually clean up the fat, clean up all the chemical lines, get ready for production, and we'll get a big boost from there. All those businesses then run into a long tail where we'll see 5, 10, even 20 years or more of continuous business as they replace those products as they consume them or as they refit or upgrade the fab.
And so all of them will have a long tail that actually lasts for decades. When I joined the company 22 years ago, we have product lines then. There were leaders that are still leaders today and things like fluid handling and filtration and many other parts the company. So when we grab that business, we have a very long tail that comes along with it. But it happens at different phases in the fab, for the different divisions.
So this is a little bit more data on that, how we're part of the ecosystem and we serve everybody. So the chart on the upper right is showing our sales by customer type, you can see, obviously, device manufacturer is very big. We're a consumables company. We have a lot of that as part of our portfolio. And so a lot of our sales do go to the fabs.
They consume, cleans chemistry as they put deposition materials down as they filter and purify as they bring in shippers with wafers and the chemicals, all that's creating business that we we get, at the fab. We also serve the equipment manufacturers. We make products that go into their tools, but also we help make sure those two are designed to accept our products once they get into the fab, either filters or something like that. Wafer growers, as they're growing wafers, they use a lot of a lot of chemistry goes into that. And of course, we make shippers for wafers, chemical manufacturers.
So we are chemical manufacturer but most of the chemical manufacturers of the world are still customers of ours. And even to this day, work very closely with us on development for filtration, purification and containers, especially actually. So those have become more important to them as well because they see this contamination control becoming increasingly important. And there's non semi applications as well. We won't cover that as much today, but certainly what we do around contamination control what we do in some of our specialty coatings and materials like graphite are usable and are being used in other industries.
So we have some presence there as well. So that's kind of why we're unique, you're not going to see too many companies in the space that have a diverse customer set like that also makes us resilient in makes us not one part can go around if we see different change in capital equipment happening or WFE, it has some impact, but not as much impact on Entegra that might have in another company. So just expanding out the customer sales to the fabs, to the bottom right there, this is an important thing to see as well is that historically been largely logic and foundry has been the big drivers because they've been driving the roadmap, until recently. And now as you've started to hear, memory has become much, much more sophisticated, and they started to need more sophisticated solutions as well. So you can see, our sales to memory there about, 35% overall, 23% of that to NAND.
And that's up from probably about 18% or so in the previous year and say continue to grow probably 25% in even more, going forward for the reasons that Wenga described. So we've seen a nice growth in that. What we've done in logic has become very important to memory. That's really helped us, to expand our SAM. Okay.
So these are the 3 divisions. I've described these to you in past sessions. Last year, we had each of the vision leaders actually talk about them. But I just want to mention kind of quickly, again, the nature of them, I won't read through the product lines, but each of them has several business units. The AMH Advanced Materials Handling division, I'll start on the right here.
So that business gets its growth when there's fabs being built So when construction is happening, that's when that business starts to sell fluid handling products into that, when that fab starts to equip and starts ramp, they'll start to sell micro environments products, so hoops. And we've seen a lot from both of those business units this year. That business grew very nicely 10% for us, and a lot of it came from that stage happening in fab builds around the world. And then liquid packaging, for fluids and wafers that comes in kind of a continuous basis in as they ramp fab and they're selling it volume over time. We see that business grow then.
Microcontamination control, fastest growing business this year for us. For all the reasons that Winga talked about contamination control becoming more important to more types of devices. So they see a big push as the fab equips and starts to clean up the tool and then they have a continuous stream of business as they replace filters at varying rates depending on the application around the fab. For a very long time to follow. So what's been happening in the builds of the fabs is very exciting for Clint and his business as they move into production a ramp, that's when his business really starts to get going, both with the device manufacturers and with the bulk chemical suppliers that also have to use filtration.
And then specialty chemicals are our largest division. So this division is almost all unit driven. So the exciting times are really ahead for you as the These spats have been being built are ramping. That's when we're going to be seeing more clean, sold. We're going to be seeing, more deposition materials sold.
Deposition business units, one of our fastest growing business units, again, this year, as I've said to you in past years as well. And we're seeing a very nice win rate. We think we're gaining share in some specialty cleans as well, all of which will ramp when we see these advanced nodes ramp. So, we see good growth for that division as well going forward. Little bit more, before I jump into the divisions, I just wanted to mention it's not just about growth.
And you heard Bertrand say that, one of the big focuses we've had has been on efficiency. And financial performance, safety being first, not only for ourselves, but for our customers in terms of providing safe products to them, a world class customer service. We actually, even though we grew this year at a record pace, we focused on a service level. To make sure we're improving our on time delivery in spite of all the pressure on us to deliver more and more. And we actually achieved that in 2017, improved our service level.
Quality and stability we've talked about in the past, we've reached a 5 Sigma level of quality, which has been a long journey for us. We're going to have to, we have to continue that going forward and then efficient manufacturing. So when we talk about margin improvement, it's really about that. About, taking the infrastructure that we've had, continue to grow, and fill it out as we've been doing this year. That continue to give us some volume leverage.
We're also going to see some mix of benefit. If you look at the growth I'm going to show you, the unit driven businesses are growing the fastest. So MC and SCEM are our fastest growing divisions. As you can see, there are the higher margin businesses as well. And so that's going to help mix perspective.
We have a lot of continuous improvement initiatives going on. We've been able to leverage OpEx, appropriately as a on through this growth, very quick growth lately. All that's designed to deliver, as Greg will describe, improved margin performance by 2020 of about 3 to 4 these points. So very quickly on the divisions, I've already talked about them a fair amount, especially chemicals. So 2017 grew 13%.
Again, that was against an MSI growth of about 10%. So outperformed by about 300 basis points. Operating margin reached 27%. We expect this business to continue to grow 200 to 300 basis points above its market. So MSI of 4.4.
It'll outgrow that, 6% to 7% overall growth in the margins. This is about a 200 basis point improvement in our outlook for the margins for this business. Compared to what we showed you last year. So we're increasingly optimistic about the business. We've talked about the growth drivers and the margin drivers, as I talked on the previous slide.
So microcontamination control. So sales growth 20%. So very, very strong year for this business. All the drivers that Wing had talked about, but we also unlocked, some new capacity. As you talked here, I was talking in the past about our I2M center down the road here, which is a membrane manufacturing that's fully online and we were able to ramp that completely and get that and other investments as you'll see, as you go on the tour today, in our manufacturing capabilities here, that helped to unlock some of the growth in MC and top of the market.
So again, a 10% 20% growth. A lot of that was being able to just really catch up and deliver more and more than we ever have. Margin is very, very strong at 37%. So you can see our outlook there to continue to grow 2 to 400 basis points above the market. And we've actually taken this adjusted operating margin range up about 500 basis points from last year.
So we are getting the leverage. We're filling out factories. We spent the time or spent the money to invest in this business several years ago for R&D And Manufacturing and starting to pay off as we filled that out in better financial performance. And then Advanced Materials Handling. So I've got a long history with this business when I joined the company.
I was actually part of this, what's now this division. Grew 10%. We were happy with that this year. Again, it's really about where they're at in the fab build cycle. We saw very, very strong demand for the fluid handling products in advanced hoops.
We actually are adding capacity in the food business right now to keep up with continued expected strong business in that throughout 2018 and beyond. We don't expect it to grow as much. It's really more of a flat to 100 basis points above market. So we've really focused this business on March So you remember us talking about this last year, we went to work really mid year this year on improving margins for this business, made a lot choices about what we're going to invest in for R&D, reducing our footprint a little bit for this business, improving the factory utilization, And so we're still dedicated to hitting our margin range of 22% to 24% by mid year. And I believe we're on track to do that.
Our second half margins for business were stronger than the first half last year. So we're on the right trajectory to make that happen. Kent, not talk about China. So I want one slide on China here. So we had very strong growth, again, a 26% this year in China.
It's really coming from, right now, this new construction that's been happening the last couple of years. We've got all we've done very, very well with our fluid handling products, wafer handling products filtration, really across the board. China because we're that unique partner to those kind of companies. So what's ahead of us is the good news is those will start to ramp, it will start see high volume manufacturing, consumables will start to be consumed at a greater pace. Our strategy really hasn't changed.
We've been investing in local talent, obviously. The infrastructure to support the market. We've had these sourcing partnerships, which we've talked about, and we had a couple of them in the last 12 months. Around our, especially our SCEM division. And then, just market coverage, having enough salespeople in right places.
The new thing that we'll talk about a little bit more is a local applications lab. So as we have in Taiwan and Korea, United States and several locations, we have applications labs to help customers pick the right product quickly and get the product installed and working effectively. We're going to construct one of those in China. We started the process already this year. So I'll conclude, I think we've hopefully described to you, what we as a company here to be responsive to these needs that Bertrand and lingo outlined.
It's really about having the capabilities to work across the whole ecosystem, becoming that trusted partner where we can come in there and work from them from the very beginning ship design through long term running of the fab and continually looking for improvements in operating efficiencies in the fab. All that's produced these long tail revenue streams that keep the company very resilient, to changes in the industry. Right now, a lot of things are coming our way terms of the applications and the demands on the company. And we've really, I think, set it up well to succeed going forward.
All right. Thank you, Todd. So when I listen to Todd, I think about 2 things. I think about diversity, diversity, diversity, and capability, capability and capability, diversity across the supply chain, diversity across the customer base, diversity across product lines That really distinguishes us for many of the other companies in the space. I mean, we're not tied to a single group of customers.
We're not tied to a single group of product lines. It's like your investment portfolios. Broader is better from a risk mitigation standpoint. So I view that diversification is being a risk mitigator. When you talk a little bit about capabilities, in today's market, the ability to have advanced quality systems, the ability to ramp product line quickly.
The ability to have the channel to market that we have are all things that distinguish us, particularly as we move to the advanced nodes, Smaller competitors are essentially out of the game because they don't offer those capabilities. That diversity in those capabilities are really what make us trusted partner. The diversity gives us great applications expertise within Semiconductor, the capabilities are obvious to the customer, The other thing I would point out is the capabilities are also what allow us to expand the margin. Getting better and better at the things we do is what allows each of those divisions to expand their operating margins. So with that, before we go to the next present, we're going to take about a 10 minute break.
The lunches are just outside the curtain. And, so try and be back in 10 minutes or so. And thank you.
So I
just want to give everyone a 2 minute warning. We're going to start in a couple of minutes with the next presentation. So if you could make your way back to the room and your chairs, so we can start immediately. Everyone, I think we're going to get started. Greg, do you want to introduce, Jim?
Jim O'Neil, our Chief Technology Officer, been with Integris about 5 years. Before Integris, 23 years with IBM, those of you who have been around the industry know that IBM developed the process technology, which is the backbone for much of the industry. He oversees our CTO organization, but also sort of guides our entire kind of portfolio management process. So Jim?
Thanks, Greg, and good afternoon, everybody. I want to reiterate a point that Todd made in his presentation and that one of the key differentiators for Entegris is the breadth of our capabilities. So whether it's Performance Materials or yield enabling technologies or purity enabling materials handling solutions. Integris really occupies a unique niche in the industry relative to our competitors as a provider of what I would call holistic solutions that really go after some of the most challenging yield and performance problems that our customers face in the industry. So what I hope to convey in the next several minutes here is a story about how Entegris thinks about innovation from the context of how we leverage this breadth and pull our pieces, of technology together into more holistic solutions.
So as you're aware, for more than 50 years now, Moore's Law has guided the industry as device manufacturers have worked to improve technology, increased density, increased performance. These advancements historically have been achieved through a process of miniaturization through advancements in optical lithography. And if you think about today, the fact that structures on advanced logic devices, have dimensions that are less than 110th of the wavelength of the light used to create them. This is a pretty remarkable accomplishment, but such lithography advancements come with, added complexity and increasing difficulty and increasing costs, leaving some to conclude that Moore's law can't continue or at least it will slow down. However, there are a number of, clever innovators in the materials front who have really figured out ways to leverage the base performance of materials and use these materials in advanced device builds to continue to improve performance.
And allow the industry to keep pace with Moore's Law. And so really, at this point in time, materials account for the vast majority of the performance improvement that we see, in advanced node technology from OneNote to the next. So really, this is a story that's all about materials. But the reliance on improved materials to keep pace with Moore's law has really introduced a new set of complex challenges. More materials means more process steps.
More process steps means more complexity and more challenging yield ramps. And so, for example, if consider the number of process steps in a 7 nanometer foundrylogic technology is approximately twice that that was found in a 20 nanometer logic technology several years before. At the same time, the technology introduction ramp at many of the leading edge fabs is accelerating dramatically. So for example, the production ramp for a 10 nanometer logic part is about 6 months faster than the ramp rate for the previous generation 16 nanometer technology in the same fab. So we've got a more complex technology ramping in a faster period of time.
We've got a real challenge in the industry. And so Our customers are focusing and pushing us to help them with speed to yield. And this is an area where Integra plays very, very strongly. So that's really the environment in which are looking for material suppliers that can provide, an increasing array of capabilities to support them. And in particular, they're looking for 3 things.
The first is the comprehensive set of engineering capabilities to solve difficult problems. Secondly, they're looking for the technical expertise and skills that they can engage with on par with their engineers and scientists to collaborate in the solving of these problems. And they're looking for material suppliers that can innovate and execute quickly given the challenge of the, node ramps that they're facing. And I would argue that Integris is responding to all of these. We are, increasing our investment in 3 main areas.
The first is in processes that help us accelerate our new product development. The second is in people and skills, which allow us to engage, directly with our customer in solving these difficult problems. And the third is in the infrastructure that supports our customers in the geographies where they operate. So what we're actually doing here is building out our global technology footprint. And I'll talk about each of these, in series.
So the first is the process. If you consider Integra's have a portfolio of more than 20,000 products, and we have a history of more than 50 years of innovating, solutions to difficult yield challenges for our customers. So we have a long history and a robust culture of innovation, but we've continued of focus on areas where we can continue to improve. Recently, we've implemented the new unified stage gate process for our new product development this was implemented after the acquisition of ATMI, and is really focused on providing the right data at the right time to enable us to make timely database risked adjusted decisions on how to proceed with a project or portfolio, in our development cycle. Secondly, we've greatly increased, the our focus on our comprehensive portfolio management process.
This is a process that is formally executed quarterly, and looks at all development activities across the whole corporation. What this allows us to are coming and what products are coming down the funnel, and when. 2 years ago, we implemented a corporate wide innovate series of innovation summits. We've held these in the U. S.
As well as in Asia. And the focus of these summits is really to bring technologists from across the company together and identify ways in which we can truly leverage the breadth of our capabilities, not only across divisions, across geographies. And the output has been a series across divisional, technical, strategic, focuses, focus areas, one on 3 d NAND, which we've talked a lot about. And this is actually expanding into solutions overall for advanced memory, beyond 3 g NAND. Secondly, we focused on EUV lithography or extreme ultraviolet lithography, and this is expanded into, a program on advanced solutions for patterning and overall advanced lithography.
And also we have an effort on wafer level package as wafer level packaging simply extends the process environment from what's traditionally the back end of the line. What's important about these cost divisional initiatives is that it forces us to really look at things from the perspective of the customer who frankly doesn't really care which division a solution comes from. So it's important, that through these, we build the concept of a 1 Entegris and look at the solution set that we're providing for the overall, overall customer's problem. Secondly, we're investing in our people and skills. Entegris has inherently a highly skilled technical work force.
About 30 percent of our 35 percent of our R and D team has a pH level, degree with an equivalent number of of Master's trained, scientists and engineers. Increasingly, this workforce is positioned to face the customer through collaborative projects, and joint work in our Entegris Technology Centers around the world. We've put particular focus on strengthening our Asia workforce over the last several years, as this is where a number of our technology centers a large piece of our customer base is located. And the net result of all of this is that a given account manager really is positioned and can in fact draw on the whole strength of Entegris, if need be, to solve a difficult, Last year, Integra spent over $10,000,000 on improving tech centers and improved equipment. Some examples of some of the activities that are either recently completed or currently underway.
As Todd mentioned, we are installing a lab in Shanghai, for applications developments within our China market. We are in the process of installing new metrology equipment in Taiwan, which will give us improved capability for on wafer particle detection, at a level, which is, on par with what our customers have in their most advanced fab. So our ability to generate customer relevant data on the performance of our materials and chemistries is greatly improved. We've implemented a new chemical mechanical planarization lab in Taiwan as a CMP facility to develop both clean formula and do application work with our customers in Taiwan, but also more broadly in the Asia, in the Asia landscape. We've built 2 new filtration labs, 1 in Taiwan and 1 in Korea, again, for both Advanced filter R and D and as well as application development.
And something you'll see a little bit later today is we have built out a new app, new analytical lab here in Bill Rica to strengthen our overall characterization capabilities for contamination and defects. Really, the focus of all of this investment is to build Integra's capabilities in a manner which best serves, our customers. And so with the skilled technical workforce and these enhanced engineering capabilities, Entegris is really positioned to work both collaborative and on par with the engineers and scientists within our customer base. And this is, really important if we're going to really truly understand the nature of the challenges that they face and develop, more complete or holistic solutions to those problems. We work very closely both with the equipment supplier community and the end user device manufacturers, to implement our solutions.
And it doesn't really matter whether it's cleans or deposition precursors or or whatever. We're the only company that can really bring such a broad range of not just products, but solutions to the table, to work on these challenging problems. So let me give you a couple of examples of some work that we've done in the area of 3 d NAND. When one project, we have been working for some time with a memory device manufacturer to provide a new deposition precursor to deposit a very film at the heart of the device in a way that will both improve performance and, and improve yield. We have identified and brought the table, a new series of precursors, which will satisfy this purpose, but we've also brought a suite of engineering capabilities, which really serve as the infrastructure to surround this chemistry of this molecule and allow its defects free delivery directly to the wafer.
So we can provide the molecule, the delivery vessel, the special coatings on the vessel to ensure, pure delivery, as well as a low vapor pressure filter to enable to further reduce combination. So we've, in fact, been able to provide not just a material, but a holistic solution to this deposition problem. And that's an example of what I mean by pulling the broad elements of Entegris together to provide a more complete solution than that, that our competitors can do. A second example with a different memory device manufacturer and an equipment supplier in this case is intended to provide a etch formulation for the selective removal of a particular film in a very complex stack of materials, again, in the heart of a 3 d NAND device. Integris, our wet clean R and D team developed this formulation that performs according to the customer specs, but rather than just providing the chemistry, we've also provided the appropriate filtration and the container solution that allows the installation and delivery of this clean chemistry cleanly to the wafer, so that it can be fully utilized.
Again, we're able to provide a holistic solution for the customer. So in doing this, I think we've established ourselves as more than just a materials provider, but really a, a true partner in the innovation process. And this innovation engine is really beginning to bear some results. Because Entegris is increasingly an innovation partner, we've increased our investment in base research. And so over the last 18 months, we seen about a 10x increase in the number of fundamental R and D projects that we've kicked off.
And these projects are really a reflection of our recognition that we need to continue to increase our base understanding of fundamental interface problems and chemical problems that are really at the heart of what our, customers are challenged with. Secondly, because we're because memory now encompasses an increasing portion of leading edge challenges, we've increased our R and D focus on memory projects. And over the last 3 years, we've seen a 6x increase in the number of memory focused R and D projects. And historically, we focused on logic because that's where the leading edge challenges were. But now with an increased focus on memory, especially 3 d NAND, our 4 portfolio is much better balanced.
And our we're having some success with these new products. This is leading to growth in our new product revenue new products now comprise about 35% to 40% of our overall revenue. This is a 5 year NPR basis. And we think that at this level, we can sustain a level of innovation within our new product portfolio that will be able to support our growth objectives. So we think the innovation level is about right, and it's being reflected in our measurably in our, our revenue results.
So I hope what you gathered from this is that Integrys's success really dependent on innovation. We occupy a unique niche as a company with the breadth to provide broad solutions, complete solutions. The challenge on us is to innovate in ways that really leverage the breadth of our portfolio and solutions that really satisfy our customers' needs. And so, for that reason, we're primarily focused on materials innovation, holistic solutions and collaboration strategic partnerships or collaborations with our customer base to enable Entegris to best serve our customers and continue to grow. Thank you.
All right.
All right. So thank you very much, Jim. So takeaway from what Jim had say to us. 1st of all, we're absolutely committed to innovation. I mean, it's the lifeblood of this business.
Our customers want to innovate. We want to innovate. Help them innovate. Secondly, it's really an extension of what Todd talked about. It's all about capability.
You'll notice that Jim didn't spend any time talking about this product or that product, but he talked about how we do things and our capabilities, because our capabilities gonna be what allow us to sort of regenerate our pipeline. He talked about those in three different ways. He talked about people, 400 or so, R and D people, a third of them with PhDs, 2 thirds of them with advanced degrees. He talked about the investments that we've made in our tech centers, in our applications labs that are close to our customers that allow us to help customers solve problems. The last thing you talked about, what I want to hit on a little bit more is process.
What we've done, And really, when I say we, I mean, Jim and his team is we have a new product development process that spans the organization. The technology people don't all report to Jim, but they're all expected to use his tool. And that tool has helped us prioritize Every product has state, new product has stage gates. It's even got for finance guy and ROI, which is like, that's great. But the point is we've become much better.
You look at the money we're spending on the nature of our pipeline, we've become better at what I call R And D investment. We've made better choices. We've put more money on the bigger opportunities. And it's paid off when you see the growth in what we're doing in 3 d NAND and the fact that our R and D portfolio has 6 times as many projects tied to 3 d NAND as it had a few years ago. So those capabilities are really sort of what's going to drive us forward.
So we're going to switch over. I'll talk a look to the, to the finance part. Of the discussion. Before I get into my presentation, I just want to do 2 things. 1, I want to sort of thank my colleagues.
This is in Bertrand and I, it's in our job description to do these things. The other three guys have day jobs, and it's a big effort to do this. So I want to tell them, I appreciate it. I also want to tell our sales and our corporate marketing team who helped us they came in and they looked at our decks from last year and they said, Wow, you guys can do better than this. And I think we have done better.
With their help. And obviously, Steve and Jolene and Gina on the IR team have been a big help here. So I'm going to really, on, with regard to finance, I'm going to talk about 3 things I'm going to level set a little bit on the objectives. I'll give you a little bit of historical perspective. I know I only get a little bit on that because that doesn't It's like, what are you going to do tomorrow?
I think you've heard a lot about that. We'll provide an update on the target model, and then we'll provide an illustration around what that target model can mean and what that can mean with a couple of different capital allocation overlays. First of all, from an objective standpoint, I think it's pretty clear. We want to continue to grow, outgrow the market, the market being defined as millions square inch of the silicon produced by 200 to 300 basis points. Operating margin expansion, Todd laid it out, each of the divisions has expansion in their margins.
Corporate wide, our goal over the 3 year time horizon is a 300 to 400 basis point in to improve our free cash flow yield. That's really important because cash is all what we have to allocate toward investments and what we get paid to do. And then finally, we want to continue to drive higher earnings per share. Lower right hand side of the slide, strict financial discipline to achieve the target model. I kind of hate the word strict.
It reminds me of like the 3rd grade for OQI teacher. But that's not what it means. In this vein, it means that primarily that we're disciplined around what we do from a financial perspective. And that doesn't mean that we have a lot of tension in the organization and people are saying we're under investing. It just means we're thoughtful around where we invest.
Spend a lot of time deciding how to make choices. We spend a lot of time on capital allocation. So talking about the results. So 2017, year of many records. So revenue up last year, 14.2%, on a CAGR basis since 2013, 18% growth in revenue.
Put that in perspective, we always talk about say, well, the rising tide floats all boats, we talk about outperforming the market. So in Since 2015, which was the 1st full year of operations since we had ATMI, our market has grown 8.8% on a CAGR basis. We've grown 11.4%. So we've outgrown the market by 260 basis points. So the 200 to 300 that we talk about going forward, not an aspiration, something that we've done before.
EBITDA and EBITDA margin. So EBITDA, margin last year, it says it exceeded 25%. In fact, as it was up close, it was in excess of 25 percent. It was almost 27%. It's grown 28% on a CAGR basis since 2013, and last year was up 35%.
So revenue up or 14%, EBITDA up 35%. Is there leverage in the model? I think so. Earnings per share, up 53% year over year. We've talked about making a buck forever year, we broke through that ceiling in a big way, $1.44.
But again, leverage all the way down the P and L, $14 on the top line 35 on the EBITDA line, 53 on the EPS line. So very good growth 26% CAGR since 2013. Free cash flow, same story, free cash flow margin up about 280 basis points from 12.1to14.9percentlast year, on an absolute basis, free cash flow is up approximately 40%. And we think we can continue to expand that margin. Something to point out with regard to last year's results, say, well, the earnings were up 53%.
The EBITDA margin, the EBITDA was up 35%. You'd expect free cash flow to grow So in the face of a 30% increase in what were our capabilities and our capacity, you know, we managed the balance sheet well on the working capital front. DSOs improved, inventory turns improved. So those all, it wasn't just better earnings, better cash flow. We invested more in the business, but we were careful as we managed, like, so the working capital side of the business.
So shifting to the balance sheet. So we exited the year with a net leverage ratio of 0.1 times. 2014, when we acquired ATMI, we took gross leverage up over 3 net leverage was at about two times. The balance sheet at year end, $625,000,000 in cash, about 2 75 of that was in the U. S.
Our long term debt, $680,000,000, consisting of the $50,000,000 of notes that we issued in the fall and about a little more than $130,000,000 of the term loan that remains from the ATMI acquisition. So we've repaid since the acquisition, 320 $6,000,000 and expect to pay another $100,000,000 over the next 12 months. So when you think about the balance sheet going forward, continue to focus on liquidity and being in a position to be able to also think about that $550,000,000 as our permanent level of debt. That represents call it 1 to 1.5 times EBITDA. So one to 1.5 times turns of EBITDA is our permanent debt.
Bottom line here though is very sound balance sheet. Fair amount of flexibility as we move forward, with our strategy. Capital allocation Bertrand talked about that. And I just wanted to provide some historical perspective. We do talk a lot about acquisitions and we think that's probably or that is our best opportunity in terms of capital allocation.
Think about that in perspective of what we've done in last 5 years. We spent $843,000,000 on acquisitions. The vast majority of that little over 800,000,000 related to ATMI. If you think about what we've done from a earnings or operating earnings, earnings per share, cash flow since that ATMI acquisition, hard to dispute that investing in acquisitions isn't a good idea. We've invested $63,000,000 in E R and D over the past 5 years.
That number between 201320 16 as a percentage of sales moved up pretty consistently. 2017 was flat with 2016, We continued to improve our new product pipeline. We continued to generate good returns on our new products. Moving forward, I would expect you to see an absolute dollars and increase in what we spend on Debt repayment. We talked about that already, $326,000,000 since the acquisition of ATMI.
In 2014. CapEx $349,000,000 over the last 5 years. $90 plus 1,000,000 last year, $60 plus 1,000,000 the year before. We'll increase that number again in 2018 to somewhere between 100 to 110. So where have we spent that money?
We've spent that money on membrane capability, while the debts show up in the P and L when you look at what we did in, micro contamination control. We've spent that money outfitting a facility in Korea. Look, what we've done in Korea the last few years. So we've really, I think we've made good investment choices on the capital side and we'll continue, do so in the coming years. From a shareholder return perspective, about $10,000,000 a quarter going back shareholders in the form of a buyback, $10,000,000 going back to the shareholders a quarter in terms of the dividend.
So $80,000,000 a year going to shareholders. When we look at it over the last 5 years, the numbers aren't so big. If you look, so we just implemented the $10,000,000 a quarter in Q2, on the buyback and the dividend was something new for us in the fourth quarter of last year. So when you look at the chart historically, not so big, But if you look at that, if we look at that chart next year, you're going to see a different picture in terms of what we've returned to shareholders. So this slide, I want to talk about 2 things on this slide.
One is I want to kind of give you my perspective on the Folio. And 2, I want to talk a little bit about where we're going through an accounting change in the first quarter of this year and I want to highlight that so nobody's surprised when we come out of Q1. So first of all, we are very fortunate, in terms of the portfolio and sort of how it ties industry trends. All four of the presenters talked about the increases in materials intensity. Specialty Chemicals And Engineered Materials is tied right to that trend.
Wayne had talked about the impact of particles in the fab environment, and contamination control in combination control. Each of the divisions has an expanding margin profile, so we're not reliant when Todd talks we talk about 300 to 400 basis points of margin improvement. It's really across the portfolio. Biggest improvement in Advanced Materials Handling, where we were at 16 percent last year or excuse me, 20% last year, excuse me, 16% last year and moving up 2 to 400 basis points over the horizon. Let me talk about the accounting change.
The center of this slide really tells the story. So you've got the adjust operating margin. You've got an old number and a new number and a 3 year outlook. The old number, if you go and pull our financial state of those respective
divisions. In 2018,
Historically, we have been very pure in terms of our centralized cost. We said it's not fair to charge a division for IT because they don't have a lot of choice around what IT system they use. We choose that centrally. Not fair to charge them for accounting. Well, we decided it really is fair to charge them for all of that because all of our peers do.
So we are allocating, we've got a bucket of unallocated corporate costs when you look at our segment data, about three quarters of which we're allocating back to the division. Moving forward. So what does that mean? So it means for each of the divisions, their published results on average are about will be about 400 basis points lower than they were historically. It means nothing on a consolidated basis.
The 3 year outlook is relative to that new number. So if you try and tie my 3 year outlook to Todd's 3 year outlook, it's slightly different. But this is what you can expect. There's no change in the relative nature. Each of the division still has improving margin, greatest of which is in AMH.
So long winded, but I just want to make sure everybody understands when we come out of Q1 and we say, Hey, our MC division had a 33% operating margin. People won't say, well, wait a minute, it was almost 38% last quarter. It's a different, it's not apples and apples. So let's talk a little bit about where we are from a target model perspective. So this page really breaks into 3 sets of numbers.
On the left hand side is sort of historical perspective, 17 performance. The middle of the page is our current external model in terms of where we operate, expect to operate and then the right hand side is our expanded external model, which takes into account higher revenue levels as well as some of the operating leverage. So let's just focus on the right hand side. At $1,500,000,005 in revenue, we expect our adjusted operating margin to be 23%, our adjusted EBITDA margin to be 28%. So when you look at analyst estimates today, most of them are in the high 1,000,000,000 dollars, $4.75 range So that's the kind of numbers we should be looking at for this year.
As we move out and apply the growth that we've talked about, we do get to what we've, you know, that 30% lower right hand side, 30 percent EBITDA margin, and $2 per share plus in EPS. So let's take everything we've, everything you've heard today and sort of put it into an illustrative model. So this chart, I want focus on 2 things. One is the upper left hand corner, this is organic. This is what we can do without M and A, without buybacks, just driving the business.
In the lower right hand corner, sort of where do we get to in terms of an operating margin or an EBITDA margin at 30% in 2 bucks plus. So revenue, $1,343,000,000 last year, at a 7% CAGR, Over the next three years, that number becomes $1,646,46. That's 7% ties with everything you've heard today, down at the bottom the page, 3% GDP growth, call it a point and a half of growth for semis and had a GDP. That's 4.4 5%. When you get talked about 4.4%, then we outgrow that market by 2% to 3%.
So 7% top line growth, 300 to 400 basis points of margin expansion. The numbers, like I said, it's all, it builds on everything that you've heard today. So the key here is that's organic. So that gets us to 2 to 210 a share, and everybody's saying that Bertrand said 250. Where is that?
So let's go ahead and talk a little bit about what does capital allocation do for us. So four columns here, 4 different capital allocation scenarios. On the left hand side of the page is retained cash build liquidity. That would have that you'd be working that would have no impact on our earnings per share. If we just built the cash up.
2nd scenario is, what if we just took everything in excess of $150,000,000 in cash and repurchase shares. That would provide accretion of $0.35 a share. So put that on top of that two box or 210 a share and you get very close right to the 250 that Bertrand talked about. Another alternative, obviously, is M and A. So M and A, again, take all of that free cash flow, all the cash on the balance sheet above $150,000,000, buy companies at twelve times EBITDA.
And you get, we would get $0.50 of accretion over the next 3 years. So now you're talking about a scenario where you're kind of 2.50 60. Then the last scenario says, yes, but, I mean, we've got this great balance sheet and we could potentially lever that sheet. So that scenario is, is what if we found a number of decent sizable deals, which we think we, will do? And we actually use some leverage for M and A.
Leverage, reasonable leverage, like we did in ATMI 3, 3.5 times. That scenario would provide a buck of potential accretion. So that, it would take you to a number, sort of, call it 3 to 3.10. So that, that's sort of the last two slides sort of roll everything together that we've talked about. So in summary, I mean, I think we're well positioned, from organic growth perspective.
No question. And we think with thoughtful capital allocation, the number we threw out $2.50. I showed you a scenario where we could potentially do better than that. In summary, At one level, very simple story, right? We're operating in a market that's as good as it's ever been and there's lots of reasons to think that it'll continue to be a great market.
The products we sell are sort of right on trend, I mean, increasing in materials intensity, increased contamination control requirements. We've got a really good balance sheet to start out as we move forward. And we've got a history of really good execution. So for all those reasons, as team, we feel great about where we're going at Integris. So with that, I'm going to bring up the rest of the group up to answer any questions.
As everyone is coming up on the stage. I just want to remind the people in the room that if you are interested in taking our tour. We're planning to start that at around 1:30 and we'll meet in the back, near the windows.
Thanks for taking my question and remarkable, Needham. So I have three questions for you, for you guys. First on DRAM, as you've shown on your slide, that's the smallest part of the 3 end market that you guys just highlight. But at the same time, we hear more logic process is going to DRAM. I think there's a lot more chunk and then that process going to DRAM.
Just given that you've put all the work into, and then have you start to see some momentum gaining and you expect that to grow at a faster pace? And up to mobile. I'm sorry.
So I would take the first part of that question and then we'll turn to Utah or Jim Mawenga, if you want to add. But, what we are actually saying is first of all, is we are allocating a lot more R and D spending to the memory technology roadmap. And that includes actually advanced DRAM as much as it includes 3 d NAND. But it's true that traditionally, the DRAM architecture has been a little bit more forgiving. And provided less opportunities for the types of solution that we're providing.
I think this is changing, and this is changing, actually, really quickly as the DRAM transitions to the 1X node. And I would expect actually those transitions to be very, very beneficial to Integris that should actually translate into our revenue for DRAM makers going forward. Sorry,
Jim, Wenga, do you want to add said it actually completely. Nothing to add to it maybe is that, as the, memory manufacturers started to work with, 3d and they started to have those challenges. They learned more about contamination control and about things like advanced poop, wafer handling with advanced poop technologies. They're starting to look now to bring that back into the more advanced DRAM as well. So I think that exposure we got is actually going to help us proliferate in DRAM.
So we feel quite optimistic that DRAMs come alive in terms of, needing the kind of things that we do.
I mean, I think there's one aspect that's interesting, which is, stack memory. I think it, it sort of leverages both memory trends, but also wafer level packaging kinds of applications as well.
I would just add in front of market point of view, 3d NAND has added a lot of capacities in the last year. And as you can see, our revenues not only from the materials in effect, but also on the tools and wafers and others. That's why the street demand revenue is growing very fast. And DRAM has not been adding capacities until now. So as they start to invest more on the capacity, I think we will see the benefit not only from revenue from effect but also from the equipment, from the materials and others.
Great. And then I have two questions for you, Greg. So first, if I look at the difference between your target EBITDA and operating margins, still stay at 5 points, even though you raise your revenue Rindeman, does that imply you're going to assert your CapEx? I just want to
make sure. But if you look
at our depreciation today, it's running in the 70s and we're we've been investing last year, we invested in the 90s. This year, it's over 100. So over time, you have that depreciation is naturally going to increase. So we expect this Yes, but to the question, do I expect that, I mean, at 100 to 110, I'm not expecting us to accelerate from there. Next year.
Thanks for clarifying that. And then on your, capital allocation chart, right, you show that in a leverage M and A you
can potentially get to a dollar incremental earnings from that, right? That seems like a really big number. If I did my math correctly, that's why I over $1,000,000,000 revenue company that generating, and like you said, you're shooting for 12 times EBIT EBITDA on an M and A, right?
Well, I mean, it's a combination, right?
I mean, if you think about where our leverage sits today, I mean, it's, I mean, there's a very, it's a very significant amount. Of debt that we could borrow our annual cash flow, the profile of that cash flow is different today than it 12 months ago because 12 months ago, I had told you about 20% of our cash flow is good for M and A. Today, I would tell you the vast majority of it is because of the change in the tax law. So the capital that we have available to allocate the pictures quite different today than it was 12 months ago.
I think what we're trying to do with this model headwind is really to actually ask Wall Street start really incorporating some element of the capital allocation strategy to the valuation integrity. I think that the current valuation of Integrys primarily reflects what we'll be able to do, organically. I don't think it necessarily reflects some of the flexibility that we allocations of capital, and you should expect us to make the right decisions, whether that takes the simplest form, which is a buyback, or something actually more significant, as Greg was describing. So we're not pointing to any one of the options. We're just saying that if you look at the panel of options that we have, we should be able at a minimum to create showed $0.35 of EPS power and maybe on the outside of that up to about a dollar.
And that's really to take a look.
That's Sidney here with Deutsche Bank. Thanks for doing presentation. I guess I'll start off with the question for the team. In terms of operating margin, is there a path to 30%, which some of your competitors are doing, or is it just not realistic based on your revenue growth targets?
Well, yes, it's a path. And I think that if you look back at the walk forward that Greg was presenting, it clearly says that we should be in a position to reach that 30%, bottom line performance EBITDA performance in 3 years from now.
Operating margin?
Operating margin, okay. Well,
I would say we have peers that are 30 EBITDA margin. I mean, we don't consider Lam Research Appear. We don't consider Aimar. Our peers are Cabot pursuing and those guys are up in one case over 30%, one case approaching 30%. Okay.
Maybe thing on the operating margin side, maybe by segment, if I add back that 400 basis points difference and just for compared comparison reasons, it looks like the contamination control site is going to have the biggest improvement from last year's, like maybe 500 basis points and followed by maybe 200 basis points from the specialty chemicals side, just try to understand what is driving that kind of improvement. F1 more.
So the biggest improvement in margin this year is actually going to be in the AMH business. Because that's the business where we right sized the cost structure. We've exited some businesses. We're closing a facility. There is leverage in the MC business, but it's not, it was 500 basis points last year, but it's not 500 basis points in 2018.
I'm actually asking about the target margin, target operating margins a year ago when you're at the Analyst Day have a certain set of and they are not comparative to this year's because changes. But if you add back to 400 basis points on your new accounting, that the difference, the biggest difference seems to be in the specialty chemo, the multi contamination line?
Yes, I think most of that came this year saw, there was a big bump in the margin this year as compared to what we expected. So we got, as I mentioned, we got a lot of leverage out of the factories this year. That business grew quite a bit. We had made investments to be ready for the growth of the business. They were dragging on us up until about a year and a half ago in was started to fill that out, saw a nice leverage to the bottom line with the business.
Combined with just success of new products and new applications and just the broadening of the business some more and more types of contamination control. So we saw a big lift, and we think we continue to improve it as I laid out in my slide. But a lot of it came this year as we grew into that capacity that we built for the business, which we really needed to do and we did it this year.
And my last question is, as I listen to all the presentations, it seems like there is a, you're not emphasizing as much on your capital expense related revenue driver. In 3 to 5 years' time, how should we think about the what you keep call unit driven revenue to be a percentage of your total revenue. So you're right. I think that as we said, about 75% of what we do is unit driven,
and that's going to be, growing in a a function of wafer starts and the level of activity in the fabs. 25% of our business is still very much related to the industry CapEx. That part of the business probably will be growing at a slightly lower pace. We don't expect the industry CapEx to grow very significantly, over the next 3 years. So as a ratio, I would expect the unit side of our business, to on a RITC basis, to represent more going forward than the, what we call the CapEx products, CapEx might have been used for things.
And our whole industry model, I mean, you didn't hear us talk about CapEx. It's A, we don't know enough about it to forecast it. And B, I mean, so we just said, we don't know. We're just going to assume it's flat with 17. So which is already, I mean, the tool guys would tell you today that that's it's going to be better than that this year, but we just said, so over the time horizon, we just, we flatlined at 'seventeen.
Thank Thank you. Patrick Ho, Stifel. Todd, you gave a really good presentation in terms of some of the customer collaboration and the strategic partnerships you're trying to establish with your product portfolio and the technology you offer. I guess the big question is, how do you extract the right value? Because you do see the growth in the operating margins line, but obviously there's an aspect on the gross margin line where can get pricing and value creation there as well.
What's the fine balance there in terms of, I guess, tracking value for Checkers? Yes,
from the partnerships. So we've been really working in this mode for several years now. And I think that since the ATMI coming together with Entegris, are kind of gravitas with the main device manufacturers growing quite a bit. So they actually bring us in to talk about solutions across the division. I mean, and Jim gave one anecdote of that in the depositional world.
So actually being able to create things that no one else can create is a great opportunity for us. 1, it can bring us a bigger win in terms of the revenue that we get, but also we create greater value solving a problem that really they can't get solved another way. It can come in there and do that kind of collaboratively. I think too that, the unique nature of how we can go work with our chemical manufacturers or we can work with our wafer growers or the tool manufacturers gives us another opportunity to actually do different things and solve the problem at the tool manufacturer sometimes at the behest of the device manufacturer or the wafer grower at the behest of device price manufacturing might have a filtration solution. They really believe in all of a sudden, and they're really asked that, their supply chain to work with us on a solution at that at that level when they're making raw materials for them.
So there's ways we can leverage that around the ecosystem, through those partner ships. Great.
And maybe as a follow-up question for GM, in terms of your discussion about the investments made on the R and D side of things, a lot of the new projects that you guys are working on today. I guess, what's the kind of life, I guess, lifetime or more, I guess, more permanently, the R and D investments, what's kind of the life cycle that R and D before it becomes a product? And how do you decide on these R and projects in terms of future product introductions?
Yes. So I think kind of a round figure to keep in your mind in terms of, sort of, I assume by lifetime, you mean from inception to product, kind of on the for products that go through the complete life cycle, there's a pretty wide range, but just use a figure of merit of roughly 3 years kind of timeframe. And in terms of deciding which products, that's really the point of our comprehensive portfolio management process. And those priorities can change depending upon the success of the project, other needs come up. It's really a very dynamic process and it's one that, we want to look at repeatedly and fine tune it as it goes along.
So I think that's the business process we put in place, which really has allowed us to be efficient with our spending, but also targeted with our execution.
I'll just add to that, Patrick. So if you think about the, the reporting that all companies do about sales from new products, historically you look at both the 3 years, which I'll talk least in the last 3 years, but also now more common is to look at the last 5 years. That's because it did take longer for the uptake. To take place. So you can design a product and get qualified.
And then that note has to ramp significantly. So while you're waiting for things like 1274 in a ramp, 10, 7 nanometer to ramp. That can extend sometimes where they solve problems around the fab and then all of a sudden you have to ramp very fast. So I mentioned, so that competency to be able to do HVM, a very steep slope is something we've really taken close and said we need to have more engineering as a percent of our R and D. So process engineering, how to actually go from a lab scale to, high volume manufacturing is more of a competency that's important for Entegris.
You'll get that longer term and also it's going to really take off. And that's kind of the shape that we see with a lot of the products now.
Hi, Mike Harrison with Seaport Global. You talked a little bit about the M and A strategy and then you also went through a lot of the financial potential that you have on the balance sheet and the potential contribution from M and A. I'm just wondering, can you maybe give us a little bit more detail on the types of financial metrics that you look at what do ROIC hurdle rates look like and how do you arrive at a decision to buy versus build or vice versa as you're thinking about acquiring somebody versus developing a capability on your own?
So we have purposely not provided quantification on some of those guidelines. I won't do that as I answer your question, but I would only say that again, we are, defining very specific targets in terms of minimum levels of accretion 2 years after a transaction is completed or minimum levels for OIC 3 years after the deal is completed. And usually, before we decide to act on any transactions, we compare the type of we can get from these acquisitions against just simply buying back our own stock. And usually, that's one of the biggest part of the foundation of the financial discipline that Greg was describing. In terms of the second part of your question, which is, when do we decide to actually develop internal capabilities versus going outside, it's really part of this whole portfolio management committee reviews that Jim and Todd were describing their respective presentations.
I think we've become a lot better at, 1st of all, assessing the various options that we have in terms of where to apply and where to put the R and D dollars. And I think that we have become a lot more objective at our internal capabilities versus what may exist on the outside. PSS is a good example of that. I mean, we have internally a lot of existing sensing and control capabilities. We have concentration controller capabilities, but PSS had actually a better solution.
I mean, they had that saturation control, capability, coupled with, particle sizing. And that combination was very powerful in the ability to provide general process control to our customers, being able to detect agglomeration of slurries in in industry mixture. So again, in this particular case, we could have chosen to develop. We felt that it was but there was a better alternative upside. We could make the financial numbers work, and that was what led us to the equity of PSS.
So we're looking at options constantly.
I think Transit is another example that I don't think exactly where we saw an operating too many around dilute chemistries that we were looking at all of our opportunities that we could be pursuing and we were placing our bets where we saw really high value and things where we could really win and, we liked to that portfolio, but the opportunity with intrinsic gave us a chance to actually grab that segment to that niche of the market very quickly and be entrenched right away and be running right away and for the right value to the shareholder. So we were, we were pleased to be able to make that fill in the gap. We might not have otherwise done it for a while. Compared to the other things we were being asked to do by the
industry. Charles
Long Goldman Sachs, one for Bertram. I guess along similar lines, how would you view actionability on the M and A front? So really with regards to its current valuation levels in the market today and how robust the cycle has been.
Yes. So again, I think that in fact of the room, you have, Corey Ritchie, who is our, as we be for business development. So we have created a team that team is scanning across the horizon, looking at gaps, you know, technology portfolio, looking at, you know, companies that could give us access to new markets, new opportunities, or new applications, even within the semiconductor space. That effort really started 2 years ago. I think that if I look at the here, the M and A pipeline today, it's much greater quality, much more actionable than it was 2 years ago.
It doesn't mean that we will be able to initially act, anytime soon, but I hope we will be able be a lot more active on the M and A front in the next 12 to 18 months. Valuation is always something that we take into consideration. Again, it's not just about finding something that is attractive and actionable, it's also we need to find something that we could afford and that kind of buy at the right value. So again, as I was driving you through the guidelines that we are using, it's a mix of strategic actionability, but also financial, attractiveness. So that's the way the best way I could answer the question before, without going into each of the specifics that we cannot go into.
I would just say I think we have a really good process in terms of
the way we do it.
And again, it gets to our discipline. If you think about it, I mean Corey's job is to find things and get deals done. He sits about 15 feet from Bertrand, and I doubt Bertrand gets his coffee most mornings before he goes and says, what's going on, Corey? My job, Todd's job is to say, what can we do with that business when we buy it? So they own So he owns getting the deal done.
Todd owns the model. So he's got to make a commitment. And then ultimately, I own kind of the valuation and the financial metrics. So there is there's a natural internal tension, but I think it works really well and it keeps us all honest.
Greg, I had a follow-up.
I don't think you gave out a specific free cash flow margin target. Do you have one that you can And I guess what have it?
I'm not really prepared to put a target out there on that today, but I mean, I do think that you'll see improvement over the coming years.
So we'll probably have time for one more, Steve, you have time?
Chris Kapsch with Loop Capital. So I don't want to beat this M and A 1 to death, but when you talked about the backdrop of the industry and how much more robust is with the MSI growth forecast being lifted and then your ability to outperform the market being lifted. And then even more positive cash flow characteristics, kind of make the case that any potential targets looking forward could be more compelling. I'm just wondering if given that backdrop and given that your confidence in your own outlook, if that's changed your willingness or motivation to do M and A from a metric standpoint. And then conversely, you sort of made the case like, gosh, our valuation isn't really reflecting any capital allocation.
So there's a tension there, I guess. At what point, absent actionability on the M and A front, do you say, okay, well, doesn't look like we're going to get something done even though we'd like to do M and A. So, our value, our own valuation is too compelling.
No, I mean, I think give this team, I think, credit for having been able to manage those tensions fairly adequately. I mean, if you look at What we're able to do with ATMI was the result of being patient. We actually did allow cash to build up on the balance sheet and if we had been anxious to spend that cash, we would have never been able to, to complete this ATM transaction that ended up being such a value creator for customers and for our investors. The same discipline prevailed still today. So what you're hearing us say is that we are gonna generate a lot of cash, and we'll take a measured view.
We hope to be able to be active on the M and A front, but we don't know. Having said that, if in 18 months from now, we haven't been able to find the right targets at the right values, you expressed us to probably return cash to shareholders in one way or another. And that's really the takeaway from Greg model is that we're going to navigate through those options. It's very difficult given all of the changes, factors around us to really tell you exactly what we're going to be doing. But expect us to do something.
And it's going to be one of those various options. I owe you one, Steve.
So I heard, so building a
global infrastructure is a priority, for the long term. And very simply put, but could you maybe discuss talent acquisition? In other words, when you're building your infrastructure in Korea or Taiwan, in effect, I think your customers are considered national champions and are very strong, purchasers of some of the same talent or 2 sides of the same coin. So How do you compete? How do you feel you're doing?
What might be the long term challenge there?
We are competing, for talent, obviously, in the industry around the world. One of the things that's really helped us a lot is really two things is that when we got to certain size through the acquisitions and the growth of the company, we're much better known. And within the semiconductor industry, we are actually very well known amongst materials companies and solutions providers for contamination control, we're really a preeminent name. They walked through any fab Asia and you're going to see Entegris' name carrying wafers around that fab. So we're not going to own that sense.
2 of the investments that we've made in local capabilities, the tech center really state of the art tech centers. I didn't say this before, but we actually do developments with our customers in those tech centers. They come to these tech centers to actually do evaluations of their wafers to evaluate chemistries, integration schemes, filtration solutions, So we're working side by side. So we actually can source talent from some of those customers. And in many cases, we've done that.
We've looked for, one of the people that runs business development with the MC division and was actually a particle expert that we worked with in Samsung. And some years later, he wanted to come join Integris like Wenga, you saw the writing on the wall for the importance of contamination control, and he came to be part of the solution for that. So we're actually because of our presence have in these markets and really the gravity we have around us in the industry now. We're able to attract very good talent especially if you are an expert in contamination control or advanced chemistry or physics, the stuff that we do is very leading edge. And so it's been able attract increasingly eager people to want to come and work for Entegris, really in North America as well as around the world.
It's always a challenge. It's a very busy market. There's a lot of, there's low unemployment in the industry and so we compete.
Okay. I just want to add one thing that 3rd, and that is we've also invested in that capability. We've invested in Talend acquisition. 3 years ago, we didn't have a talent acquisition team. We're building we have a North American talent acquisition team.
We're building a talent acquisition team in Asia. So that as well is when we talk about Cape abilities, that's the capability that we want to get better at.
And then just a quick one, maybe for Wenga, I don't know, but think one of the trends in the industry that you serve is kind of the rise of the fabless chipmaker and maybe a proliferation of more foundry based production as opposed to integrated production. And I'm just wondering whether the breadth of your product mix and may the breadth of your R and D capability, does it lend itself more directly to serving boundary market longer term?
Yes. So there's a couple aspects of that question. So we get great insight from the fabless companies. Increasingly, companies like Qualcomm and video and so forth have integrators that work with their in foundry. So they're hand in hand in defining the process with their foundry as to what will actually work with their most aggressive design.
So we have gone out and established relationships with the fabless companies to even get better head lights into what's coming on the pipe from their process, which are effectively the fab fillers and will ultimately consume more products. Now we're not going to sell any specific to them, but they are significant influencers of our end customer. And we can go in and, just back on the, on the talent issue, we've built a core team of individuals who have worked at our customers in the past our process integrators and really can speak that language. And so we can bring those individuals into the fabless company have a really in-depth dialogue about where their technology is going and what we would need to do to service that. So that's kind of a key piece of our intelligent strategy, if you will, to kind of understand where we could play.
So I want to add, a little bit on regarding the foundries. And if you read our financial reports, we, our biggest customer is a foundry right? So we have a lot of leverage working with them and benefiting from some to gaining some market shares. So that that's one aspect, we did benefit from this trend. But the industry is also shifting a little bit in 2017 that the memory guy is actually getting much more power because the computation shifting from to the more memory centric.
So that's why we also started benefiting a lot more from the memory makers. And the other side is the remaining IDMs who refuse the foundry model actually also growing those other guys who are actually making 8 inches wafers for automotive IoT. So we have revenues with them for a long time. And that actually is a growing segment for us as well. So I think the foundry growth benefited us, but we're also benefiting from the memory growth and also we call the mainstream node that's controlled by the IDNs.
On behalf of the team, I want to thank everyone here and on the webcast for your time today. I do want to note that we're scheduled to announce our Q1 results on April 26, and we look forward to continuing the conversation then. So this will now conclude the webcast.